GM says Brexit "not a good omen", mulls cuts in Europe

The carmaker has pledged to make its European operations profitable by 2016 but GM on Thursday warned the vote to leave the EU had weakened the pound, impacting Opel's business.Reuters | July 22, 2016, 11:07 IST

FRANKFURT/DETROIT: General Motors said it was considering cost cuts in Europe to offset up to $400 million of potential headwinds triggered by Britain's Brexit vote, calling into question the carmaker's ability to return Opel and Vauxhall to a full-year profit.

The carmaker has pledged to make its European operations profitable by 2016 but GM on Thursday warned the vote to leave the EU had weakened the pound, impacting Opel's business.

"We are facing strong headwinds at the moment, particularly in our largest market - the United Kingdom. The Brexit decision is not a good omen. Therefore the second half of this year is going to be anything but easy," Opel Chief Executive Karl-Thomas Neumann said in a video posted on his Twitter account.

GM Europe has not been profitable on a full-year basis since 1999. In the second quarter, GM Europe reported adjusted Earnings Before Interest and Taxes of $0.1 billon, its first profitable quarter since 2011.

GM stuck to its full-year goal, but Evercore analyst George Galliers said it is now "in the balance," adding that GM has some scope to compensate for unfavourable currency swings by raising prices in Britain.

GM described Brexit as "a speed bump" and GM Chief Financial Officer Chuck Stevens said for Europe "everything is on the table" in terms of options to mitigate additional costs brought on by Britain's decision.

"The result of the vote has adversely impacted the British pound, and the uncertainty has put a strain on the UK auto industry. If current post-referendum market conditions are sustained throughout the remainder of 2016, we believe it could have an impact of up to $400 million to the second half of 2016," Stevens said on Thursday.

Stevens said the company would now look at "any avenue" to mitigate adverse effects, whether this be cuts, changing the model mix or even changing car manufacturing locations.

"Very early days, I would suggest everything is on the table as we see how this plays out," Stevens said.

GM's pan-European supply chain has been impacted by the deterioration of the British pound against the euro.

Forecasters at LMC Automotive in a report last week said GM was the most likely automaker to cease production in Britain if costs rise at its plants in England.

LMC said the shuttering of the Ellesmere Port plant would likely happen in 2021 when the new version of the Vauxhall Astra is planned. The Astra has been built there for 37 years.

The Astra, and the Opel Sports Tourer, both built at Ellesmere Port, source their engines from factories in continental Europe. The weaker pound against the euro has made imports of components from continental Europe more expensive.

GM also has a factory in Luton, England where the Vivaro van is made. It also has factories in Zaragoza in Spain, Ruesselsheim and Eisenach in Germany, and Gliwice in Poland.

By contrast, Daimler Chief Executive Dieter Zetsche on Thursday said the maker of luxury cars and trucks did not expect Britain's decision to leave the European Union to have any impact on demand.